Texas – Calculating and Reporting Tax for Sellers Operating on the Cash Basis of Accounting

SALT Report 2460 – The Texas Comptroller issued guidance regarding how to calculate and report tax if your business operates on the cash basis of accounting. Generally, businesses that operate in this manner only record their transactions when money actually changes hands, for example, when payment is received by the company or when money is paid out by the company.

If your business uses the cash basis of accounting, and there is a change in the local tax rate between the time a sales contract is initiated and any payment is received, you should collect tax based on the rate in effect when the sales contract was initiated. However, if your contract allows a change in the contract price based on a tax rate increase, you should charge the higher tax rate.

For example, San Antonio increased its city sales and use tax rate by .125%, bringing the total state and local sales and use tax rate to 8.25%. For sales contracts initiated before the rate change, a San Antonio business operating on a cash basis would collect tax based on the old rate of 8.125%, even if the amount due under those contracts is not paid until after the rate change.

In a scenario like this, the business will be required to adjust its taxable sales amount on its sales tax report to reflect that sales were made at two different tax rates. To verify the rate in effect at the time the contract was initiated all sales contracts should be dated, and include the stated sales price as well as the terms of the contract.

For Further Information

Texas Comptroller of Accounts – Tax Policy News April 2013

Rule 3.302 – Accounting Methods, Credit Sales, Bad Debt Deductions, Repossessions, Interest on Sales Tax, and Trade-Ins